Royalty Pharma: Don't Let Elan Piss Away $3 Billion on Stupid Acquisitions

NEW YORK ( TheStreet) -- Royalty Pharma clearly understands how much investors dislike and mistrust Elan's ( ELN) management team. Its $11-per-share takeover bid gives shareholders a choice of receiving guaranteed cash now or risk Elan pissing away the $3.25 billion received from Biogen Idec ( BIIB) for full rights to multiple sclerosis drug Tysabri.

Elan intends to spend part of its Tysabri windfall on acquisitions -- commercial assets and products still in development -- to rebuild itself from scratch. It's an intriguing proposal if you believe Elan's management team can pull it off. The company's track record says otherwise.

Royalty Pharma knows this all too well, as it reminds Elan shareholders in its announcement Monday:

"Elan's management has demonstrated its ability to execute several significant disposals (including the sale of some or all of bapineuzumab, Elan Drug Technologies and Tysabri), the current senior management team of Elan has not made any significant acquisitions or in-licensed any significant late stage products for Elan and thus does not have a track record of generating attractive returns from acquisitions or in-licensed products for Elan. Furthermore, if Elan makes additional investments in businesses and assets it acquires or in-licenses, those investments may depress Elan's net income and cash flow for some period, and perhaps even cause those to become negative."

Royalty Pharma is in the business of buying pharmaceutical product royalty streams, so Elan makes a good strategic fit given the ongoing royalty payments it will receive on Tysabri sales.

Elan has ignored Royalty Pharma's $6.6 billion offer, but Elan shares are trading higher Monday, up 8% to $11.40. That's above the price of Royalty Pharma's bid, suggesting Elan shareholders want to hear more from Royalty Pharma.

Perhaps a sweetened offer gets a deal done.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.